Sally Pipes: What now for health care reform?

The Supreme Court's momentous decision upholding the vast majority of President Obama's Affordable Care Act won't solve America's health care problems. And it certainly doesn't mean the debate over reform is finished. By upholding the law, the Supremes have left it to the political branches to battle over the health care endgame in this fall's election.

A majority of voters opposes Obamacare – and has since the law passed in 2010. If they follow through on that belief at the polls in November, Congress will have the chance to render the Supreme Court's affirmation of the Affordable Care Act moot – by repealing it. In its place, lawmakers should implement patient-centered reforms that increase individual autonomy and foster competition throughout the health sector.

The Supreme Court actually set the terms of the upcoming health reform debate by focusing on Congress' power to tax.

In the opinion he wrote for the majority in the 5-4 decision, Chief Justice John Roberts deemed the individual mandate, which requires Americans to obtain health insurance or pay a "fee," permissible under the legislative body's taxation power – not its power to regulate interstate commerce.

So he gave the Obama administration the result – but not the reasoning – it wanted. Indeed, the individual mandate's "tax" for failing to secure health insurance amounts to one of the biggest tax hikes on the middle class in American history.

That tax hike may prove electorally deadly for the president and his supporters this fall. If it does, then the new crop of lawmakers should replace Obamacare with a different exercise of the taxation power Roberts mentioned.

That exercise? Changing the tax treatment of health insurance to grant individuals the same advantages that businesses enjoy when buying health insurance.

At present, employers can purchase insurance tax-free for their workers. Private individuals cannot. This imbalance smothers competition in the health care market and encourages people to overconsume health care. After all, workers don't directly bear the full cost of the care they consume.

Consequently, employer health care costs are exploding. The Kaiser Family Foundation projects that premiums for employer-sponsored insurance are going to double over the next decade, to an average $32,175 per plan.

As insurance becomes more and more expensive, 20 million people could lose their employer-based coverage, predicts the Congressional Budget Office.

By broadening the health care tax benefit to individual workers, policymakers would make it financially viable for people to step outside the employer-based system and purchase coverage on their own.

Separating insurance benefits from employment will allow consumers to pick policies that best suit their needs – not their employers'. The insurance market will grow more competitive, with more buyers demanding a greater variety of products. Insurers will be pressured to reduce prices and improve the quality of their plans.

Lawmakers should further exercise their tax muscles by expanding the availability of health savings accounts (HSAs), where patients can save pretax dollars for health services.

According to the American Academy of Actuaries, the high-deductible health plans typically paired with HSAs deliver significant cost-savings over traditional plans – as much as 20 percent the first year, and 3 percent to 5 percent on average annually after that.

It's no wonder, then, that these plans have been rapidly gaining popularity in recent years. As of January 2011, 11.4 million Americans were covered by HSA-eligible high-deductible health plans – a 14 percent increase over the previous year.

Compared with traditional health coverage, consumer-oriented plans like these encourage patients to shop smart for health care by exposing them to its true cost rather than sticking someone else with most of the bill. And because unspent money can be rolled over, tax-free, in perpetuity, patients have a strong incentive to avoid overconsuming care or ordering up duplicative treatments.

RAND Corp. researchers predict that taking HSAs from their current 13-percent share of the patient population to 50 percent could reduce annual health care costs by $57 billion.

Policymakers could make HSAs even more useful by raising the limits on how much people can contribute each year and loosening restrictions on the types of insurance plans they must be paired with.

Obamacare may have survived the judicial system. But its ultimate fate rests with voters. If they strike its death knell, a patient-centered reform alternative stands ready.

Sally C. Pipes is president, CEO and Taube Fellow in Health Care Studies at the Pacific Research Institute. Her latest book is "The Pipes Plan: The Top Ten Ways to Dismantle and Replace Obamacare" (Regnery 2012).